Global Equity Markets Generally Higher Overnight

Global equity markets were generally higher overnight except for the markets in London and Sydney which traded fractionally lower. Critical economic news released overnight included improved Japanese coincident and leading economic indicators, a significant 0.4% decline in Spanish CPI, slightly softer month over month Spanish retail sales, a significant reduction in the Italian trade surplus, a month over month rise in GBP consumer credit, a slight decline in GBP mortgage approvals, steady euro zone consumer confidence, negative but better-than-expected euro zone industrial confidence and softer than expected euro zone services sentiment. Looking ahead, the markets will face the threat of a US government shutdown which could prevent the release of the US nonfarm payroll report.

STOCK INDEX FUTURES

Apparently, the equity markets continue to “whistle by the graveyard” with their primary focus on the prospects of an October rate cut. However, between the lines there are positive views toward the consumer sector, big tech and surprisingly, growth-stocks. It should be noted that the most recent COT positioning report showed the small spec and fund positioning in the S&P net short 141,705 contracts with that net short generally building since the beginning of April! Therefore, the S&P retains speculative buying capacity. On the other hand, uptrend channel action in September was very uniform with only two modest corrections against the trend, both of which were quickly rejected.

CURRENCY FUTURES

While the US dollar reached its highest level since the middle of August last week, the greenback looks to have made an interim peak and is likely to fall back below 97.00 as the global trade expects the US to fail to control its debt and deficits. Fortunately for the dollar bull camp, the US economy is the least dirty shirt in the hamper which will partially offset the negative impact of this week’s Washington antics. However, it does not feel as if the world markets are poised to severely penalize the greenback if politicos simply kick the can down the road again. In fact, the currency markets attach the highest probability to a continuing resolution, followed by expectations of a temporary shutdown and lastly by the probability of a sustained shutdown. On the other hand, the US President has promised to fire significant government bureaucrats in the event of a government shutdown which in turn is likely to result in legal challenges from low level judges.

INTEREST RATE MARKET FUTURES

The US treasury market faces monthly unemployment figures at the end of the week (if the US government is operating) and the usual series of nongovernmental jobs related data released throughout the week as usual. However, street expectations for the nonfarm payroll reading for September paint a clear picture of slowing with estimates pegging payrolls at a mere 39,000. With a payroll reading of 39,000 the US will post the softest four month jobs tally in decades! Obviously, the Covid crisis resulted in nearly 22 million lost jobs in just two months but jobs gains before and after March and April of 2020 means the Covid slowing event was relatively brief, albeit disastrous. Therefore, it is not surprising to see treasuries showing rebound capacity with December bond support solid at 116-00 and thin initial resistance at 116-30. Clearly, last week’s economic data reduced what was sky high expectations for rate cut in the October 29th Fed meeting with a slightly disappointing quarterly PCE reading, stronger-than-expected GDP and a slight improvement in the weekly jobs data.

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